New income tax rules for remote employees

Under new rules of the Russian Tax Code, starting in 2024 the income of remote employees[1] of Russian companies or of separate subdivisions of foreign companies in Russia shall be considered as income from sources in Russia, irrespective of the state in which the employee actually performs labour duties. Russian personal income tax (PIT) on such income shall be withheld and remitted to the budget by the employer upon payment at the ordinary PIT rate of 13% (or 15% on annual income exceeding RUB 5 million) irrespective of where the employee resides for tax purposes. 

These new rules shall be in most cases overruled by double taxation treaties (DTT) between Russia and the states where employees reside for tax purposes and, therefore, will not be applied. However, this is not the case with respect to “unfriendly” states (EU countries, the US, the UK, etc.), as Russian has suspended its DTTs with such states at the present time. 

For example, remote employees working in the EU for a Russian subsidiary may actually face double taxation – i.e. be taxed in Russia and in the state of tax residency of such employee, whereby the tax credit procedure would hardly be possible in both countries. Moreover, should such remote employees return to work at an office in Russia, their income still would be taxed at the rate of 30% until they regained the status of a Russian tax resident (this requires a minimum residence in Russia of 183 calendar days). 

A further problem could exist for Russian company executives (mostly general directors) remotely working abroad. Due to unclear regulation, their income could be subject to 30% Russian PIT instead of 15%, even if their status is clearly indicated in the labour agreement as remote. No clarifications have been issued on the latter issue so far, which would mean eventual additional tax charge risks in the case of applying the 15% PIT rate. Such risks could also exist for employers as soon as they act as tax agents, as they could be also responsible for tax underpayments in such cases.

Beginning in 2025, new rules will come into effect regarding the income of the Russian service providers (individuals under civil law contracts with foreign companies). 

These rules shall apply when:

• The individuals are not Russian individual entrepreneurs or so-called “self-employed” persons; 
• They use Russian domains, programmes, or technical means hosted in Russia in their work;
• At least one of the below conditions is met:
• The contractor is a tax resident of Russia (i.e. resides in Russia for 183 days or more during the year); and/or
• Remuneration is paid to an account in a Russian bank; and/or
• Remuneration is paid by a Russian company or a separate subdivision of a foreign company in Russia.

If a foreign company has no Russian tax number and concludes above contracts, such company shall be obliged to register with the Russian tax authorities and withhold and remit the relevant PIT amounts to the Russian budget. 

It is not yet clear how the Russian tax authorities will enforce these new regulations. The issue of liability for the failure to fulfil them remains unclear as well.

[1] Such remote status should be directly indicated in the labour agreement.

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Valeria Khmelevskaya is a Partner, Lawyer and Tax Consultant admitted to practice in Russia. She has over 20 years of experience of consulting in matters of Russian and international tax law. She is also the Deputy Head of the Management Board and the Chair of the Committee for Taxes and Financial Reporting of the German-Russian Chamber of Commerce (AHK) and recommended attorney of the Austrian Foreign Trade Centre Moscow (Advantage Austria).

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